WIADOMOŚCI Z RYNKU FOREX

Investors shunned gold yesterday, turning instead towards the wider precious metals market. Industrial demand is driving the likes of silver, platinum, palladium and copper to highs not seen in months, or in some cases, years. Silver is an essential element for solar panels, batteries and other electronics, while platinum is crucial for systems such as catalytic converters, used to reduce emissions. Given their critical role in green energy technologies, both metals exploded to the upside yesterday following an announcement from Chinese Premier Xi Jinping, who pledged new green energy targets for the world’s second-largest economy. Silver pushed past $45 per ounce on Thursday, meaning it only has another $5 to go before setting a new, all-time record high. Meanwhile, platinum gained over 3% over the same time frame to close comfortably above $1,500 an ounce, matching prices from back in 2013. Palladium and copper are also on the front foot this week, with the former up 9% since Monday. Second-quarter GDP figures were revised to the upside yesterday, indicating that the US economy grew by 3.8% in Q2, surpassing initial estimates of just 3%. The correction was mostly due to a revision in consumer spending as opposed to any rebalancing of trade flows. Yesterday also revealed better-than-expected jobless claims, an improved trade balance and higher durable goods orders. Strong growth figures obviously counter the narrative of a troubled economy, which in turn temper the Fed’s willingness to intervene too drastically during the next couple of FOMC meetings. Interest rate traders are still leaning in favour of a further 50 basis points in cuts before the end of the year but FedWatch is currently only pointing to a 60% chance of that happening. The combined data led to a strong move in the dollar, which dragged the DXY back up to the mid-98 level by yesterday’s close. The shift in expectations contributed to a broad selloff in assets, with US and European indices ceding ground during yesterday’s session and Asian stock markets reacting poorly this morning. The selloff extended to cryptocurrencies, leading to Bitcoin falling below $110k and Ethereum losing $4,000. Expectations could shift again later today however, with the release of the latest PCE Price Index and Michigan Consumer Sentiment. The PCE data has long been held in high regard by the Fed and so any unexpected reading will have further consequences for interest rate predictions. Busy end to the week. #Silver #Platinum #USD

After hitting record intra-day highs on Tuesday, US indices were quickly brought back down to reality after Chairman Powell suggested that by many measures, equity prices were “fairly highly valued”. Not the harshest of judgements by any means, but stocks had been looking for an excuse to come down from recent highs and Powell’s speech seemed to fit the bill. The Fed Chairman hastened to add that this is "not a time of elevated financial stability risks". Futures contracts are marginally in the black going into today’s session. Powell’s words also reached the ears of precious metals traders, cutting short yesterday’s rallies in gold and silver. Gold came within $10 of $3,800 before giving up some of its gains, while silver closed the day almost flat, although crucially remained above $44 per ounce. With nowhere else to go, the recent gains in gold and silver are currently spilling over into other metals, namely platinum and palladium. Platinum rose over 4% yesterday to breach $1,500 for the first time since 2014 and both metals continued to surge in early morning trading in Asia. The current climate heavily favours precious metals as central banks around the world continue to move away from US treasuries. Given the lower rates on the USD, and the prospect of even lower rates in the near future, hoarding dollars now makes less sense than at previous times. With stock markets at record highs, precious metals are seen as the obvious play by many investors. Cryptocurrencies on the other hand are facing a bit of a conundrum. The massive liquidation event on Monday culminated in over $1.5 billion in bullish positions being wiped out, but despite the selloff, prices have shown surprising resilience. The larger caps have incurred only modest losses so far but the overall direction of travel remains unclear. The rise in prices seen across cryptocurrencies over the summer was fuelled in large part by firms publicly launching digital-asset treasuries. Michael Saylor’s Strategy acquired another 850 BTC on Monday, bumping the company’s holdings up to a colossal 640,000 BTC. Japan’s Metaplanet meanwhile purchased 5,419 BTC at the start of the week, making the company the fifth largest corporate Bitcoin holder with 25,555 BTC in its war chest. Funds far and wide continue to top up their stacks with various digital assets, the obvious question being how the sustained buying pressure will translate into price action. #Platinum #Crypto

The story of the beleaguered video game retailer is one for the history books. In many ways, the famous short squeeze that occurred back in early 2021 changed the game forever. A success story no doubt, but not one without its fallen victims. The GME squeeze unveils much about the shadowy nature of institutional finance, while the underlying movement betrays the darker side of investment psychology. What is GameStop? Under its current name, GameStop has been around since 1999. The company was ideally situated to capture the growth of the video games industry, expanding massively throughout the early 2000s. Hard to believe for the younger generations out there but back in the old days, if people wanted to buy a book, film or video game, they would actually have to walk into a shop and purchase a physical copy. In North America, GameStop became the go-to place for consoles, games and various collectables. It was also home to a thriving second-hand marketplace, from which the company profited enormously. It was nerd heaven. Alas, all good things must come to an end. As with many businesses that depended heavily on in-store traffic, the company suffered greatly from the advent of online commerce. Steam, the digital distributor for PC games, officially went live in 2003 and prompted the likes of Sony and Microsoft to open online stores of their own. It would take a while, but by around 2015, the scales would permanently tip in favour of digital sales and would never again favour physical media. The COVID years would accelerate the process even further and by 2023, it was estimated that over 80% of all video game sales were exclusively digital in nature. Just as Amazon crushed brick-and-mortar bookshops and online streaming services destroyed Blockbuster, digital video game sales had a disastrous impact on GameStop and other video game retailers. The setup In 2002, GameStop was listed on the New York Stock Exchange under the ticker GME. The stock fared well initially, but later on prices would start to reflect the company’s financial struggles, with shares falling to lows of $0.70 in 2020. Understandable, given the underlying fundamentals, but the price action was not entirely organic. By late 2020, GameStop was one of the most shorted stocks on the market, with over 100% of its float being shorted. This meant that more shares were being shorted than were actually available for trading – a particularly risky position for those who were short on the stock. This fact did not escape the attention of the subreddit /wallstreetbets, which discovered that investment firm Melvin Capital, among others, were heavily involved. The internet smelled blood. Our beloved video game store being exploited for financial gain by cold-hearted hedge funds? Not on our watch. Before long, a plan to force a short squeeze on the stock began to take shape. As a reminder, a short squeeze occurs when the price of an asset rises sharply, forcing those who are shorting to cover their positions in order to avoid getting margin called. This creates more buying pressure, which drives the price to higher levels still, forcing yet more parties to cover their shorts, and so on and so forth, culminating in a drastic increase in price. The squeeze The idea was an easy sell. Soon enough, investment communities from the four corners of the internet came together to stick it to the man. Users on Wall Street Bets and further afield started buying GME shares and call options in increasingly high volumes. The high short interest and low float made the stock ripe for the taking. Buy pressure began to mount. From a price perspective, things kicked off in earnest on Wednesday the 13th of January 2021. GME opened the day at $20.44 and peaked at an intra-day high of $38.64 per share. Commendable, but a mere taste of what was to come. By the 25th of January, GME had breached the $100 mark. Now people were really paying attention. Institutional money had a stake in this game and at this point, it was on the wrong side of the trade. Incredibly, hitting three figures was just the beginning. The buying pressure was relentless. The frenzy continued for another few days until the 28th of January, when GameStop hit $483 per share intra-day and even surpassed $500 in pre-market extended trading. A 2000% gain in a couple of weeks. It was a staggering achievement. Melvin Capital The short squeeze would ultimately be ruinous for Melvin Capital. The fund was forced to close its position and by the end of January, it had lost over 50% of its assets. Other hedge funds, including Citadel, would attempt to bail out the firm with a multi-billion-dollar injection of cash but the effort proved to be in vain. Melvin Capital lingered on for a couple more years, but the deathblow had been dealt. In 2022, the fund announced its permanent closure and returned all remaining funds to its investors. The battle was over and the underdog had won. A fairy-tale finish on the face of it, but there is much more to this story than meets the eye. Robinhood and the DTCC A major character in this story, not mentioned until now, is the trading platform Robinhood. With its wide array of commission-free trading options, Robinhood has grown massively over the years and played a pivotal role in the GameStop short squeeze. The platform was the perfect tool to attract retail interest to the movement and users flocked to it in droves to buy GME stock. The massive surge in buying pressure would not have been possible without Robinhood. With that said, the platform is equally responsible for the sharp decline in GME following the $483 peak. On the 28th of January, Robinhood restricted trading on GME and its customers were barred from buying any more shares. Users could only sell the shares already in their possession. The reason Robinhood did this is because they were facing a $3 billion margin call from the Depository Trust & Clearing Corporation (DTCC). When trading stocks, it is important to understand that simply hitting the buy or sell button does not result in an immediate swap of ownership. A better way of viewing the trade is that the broker, in this case Robinhood, temporarily attributes the stock to a new user and then passes this information on to the DTCC, which settles everything in the background. At the time of the GME squeeze, this process took two working days (as of last year, it now only takes one). This is an entirely standard practice and allows for a much more fluid user experience. The DTCC is a critical piece of settlement infrastructure, without which modern trading would look very different. Because of the lag between the broker and the DTCC, brokers have to meet certain margin requirements, as per financial regulations. During the time of the short squeeze, the extreme volatility in GME stock combined with unprecedented buying pressure created massive margin demands from the DTCC, which Robinhood was temporarily unable to match. To address this, Robinhood paused the buying of GME shares and drew on existing credit lines to raise billions in emergency funding. Such measures take time. The company would resume full trading a few days later, but by then the damage had been done. Without having access to Robinhood’s books, the justification given does in fact appear to be valid, but try telling that to those who bought at $400+. Many a bag holder was created that day. Things get even juicier when considering that Citadel Securities was acting as a market maker for Robinhood, handling a significant portion of the platform’s order flow. Does the name ring a bell? Citadel was one of the hedge funds that bailed out Melvin Capital to prevent it from defaulting following the squeeze. The waters become increasingly murky. Given the above, it is easy to see why the halt in trading was seen as a way of screwing over retail investors in favour of institutional hedge funds such as Melvin Capital and Citadel. As for why Citadel tried to bail out Melvin Capital, the explanation given essentially boils down to containment. As intertwined as such players are, stopping one domino from falling prevents wider contagion. So the story goes. An investigation was conducted, but to no one’s surprise, no evidence of wrongdoing was unearthed. A hundred arguments could be made either way on this case. Perhaps a more neutral way of looking at these events is that while the likes of Robinhood, Melvin and Citadel did nothing technically wrong, the opaque and incestuous nature of institutional finance leaves retail with an unwinnable battle. If only some kind of transparent blockchain-based clearing system could be implemented. Wouldn’t that be nice. Forgotten remnants The story should probably have ended there, but it did not. Despite the obvious success of the short squeeze, for some, it was not enough. For the die-hard enthusiasts, Robinhood’s controversial actions had doused the fire, which should have raged on to the destruction of far greater players. Justice had not been served. Almost five years after it all kicked off, there persists a community of investors resolutely committed to the movement. Many within this community believe that the real short squeeze has not yet occurred. The events of January 2021 were just a warm-up. The mother of all short squeezes, or MOASS as it is often called, patiently bides its time. It is certainly the case that the actions of Robinhood cut the run short. It is also true that short interest on the stock remains high – around 16% at the time of writing. Unfortunately, this is where the rational argument ends and the darker side of investment psychology takes over. The sad truth of the matter is that many GME investors are underwater and have been for some time, which inevitably promotes the deadly sunken cost fallacy. Investors continue to hold onto a losing position because they have already poured significant time, money and energy into it. With every passing day, it becomes harder to let go. Fear sets in but results in no action. Valid concerns are waved away. The communities persist, but the hype gradually fades. Those who remain become increasingly less vocal. An inconvenient truth is that over the last four years, most GME investors would have been better off parking their funds in the S&P 500. For some, commitment to the cause trumps any notion of financial gain. They are in the movement because they genuinely believe in the cause. The anti-establishment sentiment is more than enough for many people, which is absolutely fair enough. More generally, the online culture that has developed over the years now constitutes a familiar, meme-rich environment that investors far and wide proudly call home. GameStop is not alone in this regard. A number of other stocks have acquired devotees of their own, such as Bed Bath and Beyond (BBBY) and AMC Entertainment (AMC). GameStop’s legacy The events surrounding GameStop had a lasting impact on the financial world. In many ways, the GME short squeeze represented a shift in market power from traditional hedge funds to retail investors. Current situation aside, the fact remains that the GameStop community won and Melvin Capital lost. As retail investors gain ever more powerful tools and as markets become ever more transparent, one wonders how many more GME events we will see in the future. On a dourer note, dedication to a company and its stock price seems like light-hearted fun on the face of it, but runs the risk of turning into something far more worrisome. The biggest problem with remaining steadfastly committed to a given stock is the opportunity cost of doing so. Sticking to a singular asset cuts an investor off from every other opportunity. Unwavering devotion is a noble trait in many circles, but arguably not in financial ones. Do not marry your bags. Footnote: GameStop executed a 4-for-1 stock split in 2022, meaning all the prices discussed above would need to be divided by four to reach the current pricing.

Autumn is officially here and Q4 is just around the corner. The summer months have been undeniably kind to stock markets, particularly in the US and in Asia. Last Friday saw the Dow, S&P 500 and Nasdaq all close at record highs, with the latter in particular closing the week 2.2% in the black. The Nikkei 225 proved eager to preserve the momentum this morning in Japan, pumping over 1% before traders even had a chance to sit down for lunch. US futures markets fell slightly on Sunday night, but sentiment going into this week is largely neutral. Although last week’s Fed decision had been heavily priced in, markets were still grateful for the reassurance. By all accounts, rate cuts are set to continue at a slow and steady pace, which suits most investors just fine. Future rate cuts play into the hands of precious metals, which continued to exhibit strong buying pressure last Friday. Gold gained over 1% on the day to close the week at $3,684 per ounce, but the real action is currently unfolding in the silver markets. The white metal gained a massive 3% on Friday to break through $43 per ounce and wasted no time this morning in pushing even higher. Silver is already half way to $44 and is inching ever closer to a record high of its own. Unfortunately for crypto holders, the bullishness in precious metals is not spilling over into digital assets. Cryptocurrencies are currently undergoing massive liquidations across the board, with Bitcoin dipping below $112k as billions worth of positions are getting wiped out. An absolute bloodbath is unfolding in the broader altcoin market, with some projects boasting double-digit losses. Nothing to speak of on the economic calendar today, although a number of FOMC members are set to deliver speeches throughout the day, including newly-appointed board governor Stephen Miran. Tuesday brings us more Fed talk, this time from Chairman Powell himself, as well as manufacturing and services PMIs from Australia, Europe, the US and then Japan late at night. The Swiss National Bank is expected to hold rates steady on the Swiss Franc at 0% on Thursday before US GDP data drops later in the day. Finally, Friday will see the release of the latest PCE Price Index – a key marker for US inflation – followed by Michigan Consumer Sentiment to close out the week. #Silver #Crypto #StockMarket

In a strongly telegraphed move, the Federal Reserve finally lowered rates on the dollar on Wednesday by a quarter of a percentage point. The decision was almost unanimous, with only one of the twelve FOMC members opting for a bigger, 0.5% cut. The board spoke of the US economy being in broadly sound shape and that weakness in the labour market was something that lower interest rates would help to alleviate. Critics of Fed Chairman Jerome Powell have been calling for a rate cut since the start of the year, and although Wednesday’s decision was a welcome one, for many it came too late. Two more 25-bps rate cuts are expected before the end of the year: the first on the 29th of October, the second on the 10th of December. The dollar reacted positively to the announcement, gaining against other major currencies over the last two sessions, although the DXY remains near yearly lows. Gold and silver experienced some degree of profit taking on Wednesday, suggesting that some market participants were expecting a larger cut. Silver opened with renewed vigour this morning however, as prices pushed back over $42 an ounce with absolutely no resistance in the early Asian session. The Bank of Japan elected to maintain a 0.5% interest rate on the yen this morning, surprising no one. As the only newsworthy event of the day, traders are looking at an empty economic calendar to finish off the week. A huge announcement from Nvidia (NVDA) sent shockwaves around financial circles on Thursday. A surprising alliance has emerged after the largest company in the world pledged a $5 billion investment in fellow chipmaker Intel (INTC). The deal secures Nvidia an approximately 4% stake in Intel and follows a similar move by the U.S. government, which took a 10% stake last month. Technologically, Intel will produce custom chips for Nvidia to use in its AI infrastructure platforms, while Nvidia technology will be implemented in Intel chips designed for personal computers. Intel shares surged by 22% by yesterday’s close following the announcement. Intel has been struggling financially for some time but remains of high strategic importance because it is the only high-end chipmaker still manufacturing in the US and has contracts to produce chips for the Department of Defense. Interestingly, the partnership between Nvidia and Intel was achieved independently of the U.S. government’s stake, which constitutes a separate agreement. #Gold #Nvidia #Intel

Price moves against the news, and you cannot see why. The data looked strong, the chart looked clean, yet the pair kept falling. In trading, market sentiment is simply the overall feeling or attitude investors and traders have about a particular market, currency, or asset at a given time, and it often explains the moves that the headlines do not. In forex, sentiment is read through positioning and risk appetite rather than share prices. This guide sets out what market sentiment is, how to read it with real indicators, and how to trade it with a stop-loss and a defined amount of risk. Market sentiment is the overall mood of traders towards a market, usually described as bullish, bearish or neutral. It is measured with positioning data such as the CFTC Commitments of Traders report, surveys and volatility gauges. It matters because crowded positioning can push price further than the news alone suggests, and can reverse sharply when the crowd changes its mind. Check sentiment against live prices. Practise reading it on a real platform. Market sentiment moves prices because traders act on their expectations before the data confirms them. The mechanism runs in three steps: Two related terms are worth separating. Trading sentiment describes the general mood in a market, while trader sentiment describes which way retail and institutional traders are actually positioned, long or short. In forex the mood usually shows up as risk-on or risk-off behaviour, and money flows between safe havens and higher-yielding currencies accordingly. Risk-on describes a market mood in which traders are willing to hold assets that can lose value quickly, so money flows into equities and higher-yielding currencies such as AUD and NZD. Risk-off is the reverse: fear takes over, volatility rises and money moves into safe havens such as JPY, CHF and USD. A rising VIX is the most watched signal that the mood has switched to risk-off. Case study: Brexit and GBP. On the night of the UK referendum result in June 2016, GBP/USD fell from around 1.50 to about 1.32 within hours as fear of economic uncertainty took hold. In the months that followed, headlines and rumours about negotiations moved the pound repeatedly before any economic data changed, which is what a sentiment-driven market looks like. Read more: Long vs Short Position Compared: How to Trade Each Like a Pro Market sentiment indicators turn the crowd's mood into numbers you can check. Each one measures something different and updates at a different speed, so traders usually combine two or three rather than relying on one reading. The seven most used are: The table below sets them side by side so you can see what each one measures, how fast it updates and who it suits: What counts as an "extreme" reading differs between sources and over time, so treat the levels published by each provider as a guide rather than a fixed trigger. Technical tools such as RSI and moving averages can show optimism or pessimism in price, but they measure momentum rather than positioning. Read more: What is RSI in forex? Meaning, formula and signals Forex market sentiment is shaped by a small set of recurring forces. Each one below is described the same way: what it is, how it moves the market, and what a trader can do with it. Economic data means the scheduled releases that measure a country’s economy: inflation, employment, growth and retail sales. The market reacts to the gap between the published figure and the consensus forecast rather than to the figure itself, so a result that merely matches expectations often produces very little movement. UK CPI inflation peaked at 11.1% in October 2022, the highest in about 40 years according to the ONS, and because each print above forecast raised expectations of further rate rises, the pound found buyers on data that would otherwise read as bad news. For a trader, the practical use is timing and sizing. Knowing the release calendar shows when sentiment is most likely to shift, which is why many traders position ahead of a major release and cut size in the minutes before it, when spreads widen and the first reaction can run 40 to 80 pips on GBP/USD before settling. In our experience the first five minutes after a UK CPI print are the worst time to hold an opinion: on more than one release the pair has moved 50 pips one way on the headline figure and reversed the whole move once the core reading was read, so the rule on the desk is to wait for the 15-minute candle to close before adding to anything. An interest rate differential is the gap between two countries’ policy rates, and it is the single largest driver of medium-term currency flows. Money tends to move towards the currency that pays more, which lifts that currency over weeks and months as long as the gap is expected to hold or widen. What moves sentiment day to day is not the current gap but the expected one: a hint that one central bank will raise faster than the other can move a pair before any decision is taken. Traders use the differential to decide which side of a pair has the structural tailwind, then watch rate expectations, usually through market pricing of future meetings, for early signs that the mood is turning. A trade that goes with the expected widening of the gap has sentiment behind it; one that goes against it needs a stronger reason. Geopolitical events are wars, elections, sanctions and trade disputes, and they influence sentiment through uncertainty rather than through any measurable data. When the outcome of an event is unclear, large participants reduce exposure and move capital into currencies seen as safe havens, usually JPY, CHF and USD, while higher-yielding currencies such as AUD and emerging-market currencies are sold. The move can begin on a headline and reverse on the next one, which makes this the least predictable source of sentiment. Two examples show the pattern. When Russia invaded Ukraine on 24 February 2022, EUR/USD fell more than 100 pips in the European morning while USD, CHF and JPY were bought, and the euro kept underperforming for weeks as energy-supply fears stayed in the headlines. Closer to home, the UK mini-budget of 23 September 2022 was a political event rather than a data release, yet GBP/USD fell to a record low near 1.035 on the following Monday as traders questioned the credibility of UK fiscal policy, and it only stabilised after the Bank of England stepped in to buy gilts. The trader’s use is defensive. Rising tension on the calendar is a reason to reduce size, widen stops to allow for headline spikes, or stand aside in the pairs most exposed to the event, and to treat any safe-haven rally as a mood that can unwind just as quickly once the uncertainty clears. In our experience the costliest mistake in these weeks is not picking the wrong direction but keeping a normal position size: on the Monday after the mini-budget a 40-pip stop on GBP/USD was taken out inside the first hour of London trading by a move that had nothing to do with the chart. Central bank policy covers the rate decision itself, the statement that accompanies it and the guidance about future meetings. Sentiment shifts on the guidance more than on the decision, because the decision is usually priced in by the time it is announced. The Bank of England raised Bank Rate to 5.25% in August 2023, its highest level since 2008, and across that cycle each meeting moved GBP according to whether the wording suggested more rises to come or a pause. For traders, the useful habit is reading the statement against the previous one. A single changed phrase about inflation or growth can flip positioning within minutes, so the comparison tells you which way the crowd is likely to lean before price has finished reacting, and whether an existing trade now sits with or against the central bank. We keep the previous Bank of England statement open in a second window on decision days; the August 2023 meeting is the one that taught us why, because the rate rise was fully expected and the pound still fell, driven entirely by a vote split and a softer line on further hikes that the headline could not show. Corporate earnings are the quarterly results of listed companies, and in forex they matter indirectly. A strong earnings season lifts stock markets, which encourages risk-taking and supports higher-yielding currencies; a weak one does the reverse. The effect reaches currencies through equity flows and risk appetite rather than through any direct link between a company and a currency pair. Traders treat earnings season as background context for risk appetite rather than as an entry signal. The practical check is whether major indices are rising or falling during the season, because that tells you whether the broader mood is likely to support a risk-on or risk-off position in forex. Risk appetite is the market’s willingness to hold assets that can lose value quickly, and volatility is the speed at which prices are moving. The two run in opposite directions: calm markets encourage traders to buy higher-yielding currencies and sell safe havens, while a volatility spike reverses those flows within hours. A sudden jump in the VIX is often the first visible sign of the switch, usually before the currency pairs themselves have moved far. Traders use volatility as a filter for position size and strategy choice. Low volatility favours carry and trend positions in higher-yielding pairs; rising volatility is a cue to cut size, favour safe-haven pairs and expect wider stops to be necessary, because the same stop distance that worked in a calm market is hit by noise in a volatile one. News and media cover everything from wire headlines to social media posts, and they move sentiment by spreading an interpretation faster than the underlying facts can change. A headline can trigger a wave of buying or selling within minutes, and because many participants react to the same source at the same time, the move is often larger than the information behind it justifies. Much of that move then fades once the detail is read. The trader’s rule is to check the source and wait for price to confirm. A headline that produces a spike followed by a close back inside the previous range was a mood swing, not a change in the trend, and trading the second move rather than the first avoids the most common way of being caught on the wrong side of a news reaction. Technical indicators do not cause sentiment, but they record it. A run of higher highs builds optimism because each new high confirms that buyers are willing to pay more, while repeated failures at the same resistance level turn the mood cautious as traders conclude the move has stalled. Round numbers and widely watched moving averages act the same way, because enough participants react to them that the reaction becomes self-fulfilling. Traders use chart signals to confirm what positioning data suggests. When the COT report shows an extreme and price then breaks a key level in the opposite direction, the two readings agree and the signal is stronger than either alone; when the chart keeps making new highs despite a crowded reading, the extreme is not yet ready to be traded against. Sentiment analysis is the third way of analysing the market, alongside fundamental and technical analysis. Each answers a different question, and the table sets them side by side. Used together, fundamentals suggest the direction, sentiment shows how crowded the trade already is, and technical analysis times the entry. The tools named in the table are the ones that come up most often, and four of them are worth defining before they appear again below. The Commitments of Traders report is a weekly CFTC publication showing how large speculators and commercial hedgers are positioned in futures markets. Traders read a net position stretched to one side as a sign that a trade has become crowded. The VIX is the Cboe index of expected 30-day volatility in the S&P 500, often called the fear gauge. A rising VIX signals risk-off conditions, which in forex usually means money moving into JPY, CHF and USD. The Consumer Prices Index measures the change in prices paid by households over a year. In the UK it is published monthly by the ONS and is the inflation figure the Bank of England targets, so a print above or below forecast moves rate expectations and the pound. The Relative Strength Index is a momentum indicator scaled from 0 to 100 that compares recent gains with recent losses. Readings above 70 or below 30 are read as overbought or oversold, but they describe price momentum rather than how traders are positioned. Read more: The best forex indicators every trader should use in 2026 Read more: What are the 4 types of forex analysis? A complete beginner's guide Market sentiment indicators suit traders who can wait for confirmation, but they are a poor fit for anyone who wants a single signal to act on. They are most useful for swing and position traders holding trades for days or weeks, because weekly data such as the COT report matches that pace. Very short-term traders and beginners relying on one reading should be careful. The table matches each indicator to the trader it serves best: The practical limits below explain why the cautions matter. Read more: Trading Styles: Which One Suits UK Traders? Sentiment can be traded with the crowd or against it. Each strategy below needs an entry condition and a confirmation before the trade is taken. Trade in the direction of the prevailing mood when sentiment and price agree. Read more: Trend Trading Strategies: How to Use Indicators with Examples Trade against the crowd when positioning becomes extreme. In our experience this is the strategy that punishes impatience most. A reading of 75% of clients short EUR/GBP once stayed at that level for three weeks while the pair kept falling, and the two early long entries taken on the reading alone cost 30 pips each before the price break finally arrived and the trade worked. The reading was right about the crowd; it said nothing about the timing. Trade the turn when the mood shifts from one extreme towards neutral. Trade the gap between what the market expects and what is released. This contrarian trade uses illustrative prices, not live quotes. Retail positioning shows most clients short EUR/GBP at an extreme reading, and price then closes above a recent resistance level, giving the technical confirmation. On EUR/GBP one pip is worth £0.10 per 1,000 units. With £20 at risk and a 30-pip stop, the maximum size is £0.67 per pip, rounded down to 0.06 lots at £0.60 per pip, so the real risk is £18, or 0.9% of the account. The risk-reward ratio is 1:2. If the target is hit, the trader books £36 and records which sentiment reading and confirmation led to the trade. If the stop is hit, the loss is £18 and the trader does not re-enter while sentiment stays extreme; a second entry needs a fresh price break, not a stronger conviction. Adding sentiment to a strategy works best as a short, repeatable process. You are done with each step when the condition in its last sentence is met. Decide whether sentiment will be used to follow trends, to fade extremes or only as a filter. You are done with this step when that role is written into your trading plan in one sentence. Choose a small set of indicators that fit your timeframe, for example COT for weekly context and retail positioning for entries. You are done with this step when you know where each reading comes from and when it updates. Require a price or fundamental signal before acting on any sentiment reading. You are done with this step when every entry rule names both the sentiment condition and the confirmation. Record the result of every sentiment signal you take, including the ones that failed. You are done with this step when you have reviewed at least 20 recorded signals and adjusted the rules that did not work. Read more: How to Make a Profitable Trading Plan: A Senior Trader's Guide Trading on sentiment brings specific risks, and each one has a matching way to handle it. Every trade should have a stop-loss before it is opened. In the UK, the FCA limits leverage for retail clients to 30:1 on major currency pairs and requires CFD providers to show the percentage of retail accounts that lose money. Read more: What is a stop-loss order and how to set it Read more: 10 Forex risk management tips every trader should know Yes. Social media spreads news and opinions quickly, so it can shift the crowd's mood within minutes, but it also adds noise that should be checked against price action. Yes. Risk-on and risk-off moods move commodities such as oil and gold, and those moves feed into commodity currencies such as AUD, CAD and NZD. For forex, the CFTC Commitments of Traders report and retail positioning data are the most widely used, and UK traders can also read the positioning data that FCA-regulated CFD providers publish for GBP pairs. Volatility gauges such as the VIX help across all markets, while each market has its own measures: gold tends to follow real yields and risk-off flows, crypto follows funding rates and exchange flows, and UK index CFDs follow the FTSE 100 and Bank of England rate expectations. Yes. The CFTC publishes the Commitments of Traders report free each week, and many brokers show free retail positioning data for major currency pairs. Not reliably. Extreme readings show where the crowd is positioned and can warn of a possible reversal, but they do not tell you when it will happen. It is not recommended. Sentiment works best as one input alongside technical confirmation and a stop-loss on every trade. Market sentiment is the crowd's mood, read through positioning data, surveys and risk appetite, and it works best when price confirms what the readings suggest. The indicators tell you how crowded a trade is; the chart tells you when that crowd starts to lose. To put it to work, check one sentiment reading on the pair you trade, wait for a price break that agrees with it, and size the position so that no more than 1% of the account is at risk. In our view, sentiment is most valuable as a warning that a trade has become crowded, rather than as a signal on its own. The RADEX MARKETS editorial team consists of seasoned financial professionals and market observers. Dedicated to delivering objective market summaries, macroeconomic insights, and educational content, the team strives to keep traders well-informed in a fast-paced financial environment. 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